I wanna know what the economic freaks really think about all this. Imagine your running your GPU farms and PG&E says we accept bitcoins. I'm curious about a few things, will cost of electricity theoretically go up? Will bit coins value go up or down? Why does my brain hurt and feel good at the same time when I think about this?

I wanna know what the economic freaks really think about all this. Imagine your running your GPU farms and PG&E says we accept bitcoins. I'm curious about a few things, will cost of electricity theoretically go up? Will bit coins value go up or down? Why does my brain hurt and feel good at the same time when I think about this?

Shouldn't it only change things by roughly the fee for converting that is now gone?

Oh, people could hold their Bitcoins longer (to the last second of paying the bill) and with more confidence if the price was static in bitcoins and not just a conversion from dollars. That should increase demand by a little. At this stage the PR boost would obviously increase demand too.

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If electricity companies knew about Bitcoin, they'd use all their electricity mining for themselves, and wouldn't have any electricity left to sell to the public.

I mentioned this to PLATO while we were hanging out during his visit but part of the costs associated with harvesting energy are running transmission lines and all the costs and losses associated with transmitting power over long distances. With Bitcoin, you can harvest energy anywhere, consume it on the spot, generate BTC to turn a profit and all of that at a fraction of the cost compared to transmitting it for typical consumption. Just something to think about for the future.

Presently the link between bitcoin price and computer expenses is creating a very interesting dynamic. I recently wanted to buy a $1000 machine to do bitcoin mining with. I did the calculations at $1/btc and if all I wanted was a profit (i want the PC for personal use too) then it would not have been really worth it. That analysis actually did not even take into account that I am used to working on low power machines and that the hardware to do this actually costs a lot in power usage as well.

If I had to venture a guess bitcoin will for a long time hover just above the price of generating blocks. As more people enter the game, this will become more expensive and so will bitcoin. This will increase the incentive to generate bitcoin at a lower cost; better code, more effective hardware, maybe even purpose built hardware with low power costs.

Eventually this process will hit a ceiling. It will be too specialized a task and too expensive for most people to do it profitably. I will not be surprised if this ceiling has a connection to the cost of generating a Kilowatt-hour of electricity and the power consumption of the prevailing BTC generation method.

Adding your scenario to it and assuming sunken costs in hardware, it follows that professional bitcoin generators might pay slightly less for power than they get for bitcoins (85%-95%?)

I didnt think about the electric companies generating bitcoins. Costs could theoretically go down in electricity if they are paying there employees with bitcoins. Then electric bills can go do physical costs such as new transformers, or new building, etc, etc.

It was a joke, to help people to think about this laterally. As bitcoin2cash pointed out, there are economic advantages to mining at the generator.

Um, yeah maybe, but that would be a reason for the power plant to be the only bitcoin generator (outside of 'fun' generation), not a reason to use all the power on generating. Diminishing marginal returns...

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As often observed, the theoretical model states that over time bitcoin prices should approach the marginal cost of electricity necessary to mine bitcoins. With recent BTC/USD price rise that model seems to be broken, since we should see a gradual decline in BTC/USD as it approaches the price of kWh/USD. However the theory may still be correct if you take into account the lack of capacity of BTC generation - not enough people with idle GPU farms sitting around. Further, you need to look at the capital cost. I saw an observation that even if you go to Amazon S3 (a quick way to add capacity) you cannnot mine profitably, since Amazon pricing has to take into account their capital costs.

Practical consideration aside, I would answer the question this way:

It turns out that in California 80% of the electricity generated is not owned by PG&E. They only own the nuclear plants, which generate about 20%. There is an ISO that controls the high voltage transmission backbone as a public trust, and contracts PG&E to service and maintain it. Utilities that service end customers (there are many) all bid for their electricity on the open market from the independent generators, subject to ISO rules.

If the PG&E had a BTC tarrif, presumably they would not care if you could mine more than 1 BTC for an amount of electricity that they price at 1 BTC. They would convert it back to USD on Mt Gox anyway to pay their employees, suppliers and shareholders. If they have the ability to price it freely (which they do not in real life), over time they would raise the BTC price to the point where your marginal BTC generation profit (#BTC mined - cost of electricity in BTC) was enough to cover your capital costs and return enough profit for you to be motivated to buy a large volume of server farms. This is the familiar supply-demand price-volume-marginal cost equations of Economics 101. PG&E want to maximize their total profit, which is (price - cost) x total volume.

Now, get ready for it, the part that will really squeeze your brain: You (the miner) will be motivated to find the cheapest cost of electricity generation. In California the two cheapest sources happen to be the nuclear plants and the wind farm in Palm Springs. PG&E owns the nukes, but they have to bid them separately onto the ISO just like other generators. A better bet is to co-locate your GPU farm at the base of the wind farms near junction Hwy 111 and Interstate 10. There are significant transmission costs about equal to cost of generation. You could buy electricity directly from the wind mill, cutting out transmission costs and getting a really cheap source. It would be cheapest late at night 11 pm -7 am, if a gust of wind blows when there is little overall demand. Generation prices are bid on the ISO every hour and vary widely. You could pay your windmill in BTC effectively you are just sharing your take with them, and both of you sell it on Mt Gox.

Since the costs of transporting your mined BTC is negligable, you can do it anywhere you can get an internet link.

Thank you for coming up wiht the ultimate circular brain teaser, for that I give you a

I envision square kilometer nanofilm sheets, each sheet weighing no more than 100 kg. A single Atlas V rocket could launch 200 square km worth of these fragile soap bubble thin collectors into low earth orbit, where they begin the slow process of unfolding.

The sheets have nano-tube based circuits integrated into their entire surface.

Bitcoin generation doesn't happen a few meters from the electricity source, it happens a few atoms from the electricity source.

No need to transmit electricity back to Earth, only low bandwidth data.

After they reach their end of life they simply disintegrate in the atmosphere, but replacement is continuous.

Eventually those sheets could become so numerous that they block a couple of % of sunlight reaching the Earth.

Bitcoin not only saves the world from central banking but global warming too!